WILLIAM SCHUH: HOW TO KILL A BILLION PEOPLE - PART II: INDIRECT EFFECT OF GREENHOUSE GAS SUPPRESSION
The Indirect Effect of Greenhouse Gas Suppression on the World Food Supply
Part I (the August issue) demonstrated that the production and use of synthetic nitrogen is a substantial contributor of atmospheric greenhouse gases. It was also shown that almost half of the world’s population is dependent on synthetic nitrogen, produced by the Haber-Bosch process, for survival. It was concluded that greenhouse gas suppression policy and the Green Revolution, which has prevented the starvation of millions since the 1940s, are on a “collision course.”
It is clear that suppression of ammonia production to reduce CO2 and other greenhouse gas emissions will have a deleterious, and plausibly a disastrous effect on world food production. There are several mechanisms by which cap-and-trade and other domestic measures, and worldwide limits on carbon emissions will deplete the world food supply. These include: the direct effect of production limits, or cost increases caused by carbon taxes or quotas on ammonia production costs; indirect effects of carbon taxes or quotas on methane or coal feedstock cost for ammonia production as prices increase with other substitute energy sources (petroleum, coal-fired thermoelectric, etc.); and indirect effects of the costs of fertilizer transportation caused by the impact of quotas or taxes on carbon emissions on transportation fuels costs. In addition, food availability will be decreased by the direct effects of the shift from fossil fuels to bioenergy on grain supplies as biofuel producers compete for the worlds agricultural base; and the effect of increased water demand for carbon capture and imbedded water for the production of biofuels feedstock on food production.
First, as an example lets examine the potential effect of one domestic cap-and-trade proposal alone on ammonia fertilizer. From 2004 through 2007 the cost of ammonia at the Henry Hub, the U.S. market standard, hovered around $300 per ton. According to the EPA “impact model” the increased cost of natural gas resulting from the Waxman-Markey 2009 cap and trade bill has been estimated to be $28 to $36 per ton of CO2 emitted by 2030. The direct cost increase of cap-and-trade on ammonia cost at 2 tons CO2 (methane feedstock) would be $56 to $72 per ton, an increase of about 19% to 24%. Double it ($112 to $144, or 38%to 48%) for lignite feedstock. But this only accounts for the direct cost of the tax. This cost may be dwarfed by rising natural gas prices caused by scarcity of energy resulting from suppression of other energy industries.
The suppression of CO2, rather than taxation is, after all, supposedly the main goal. But the fact is, there exists no technology for cost-effective production-scale removal of CO2 in combustion emissions. For example, the U.S. Department of Energy estimates that efficiency or parasitic power losses of up to 50% will result from application of the best current carbon stripping technologies to coal-fired power generators. Since coal-fired electricity constitutes about 60% of all domestic electrical power generated, we may lose up to 30% of our entire electrical power sources. The effect on energy costs in general may be surmised. The fact is, lacking cost-effective carbon removal technologies, the effect of cap and trade will be mainly that of the suppressing energy use through rising costs. As stated by Ben Lieberman, Senior Policy Analyst for Energy Policy and the Environment with the Heritage Institute in testimony before the Senate Republican Conference, June 22, 2009, “the bottom line is that cap and trade works by raising the cost of energy high enough so that individuals and businesses are forced to use less of it. Inflicting economic pain is what this is all about.”
Natural gas competes with a broad range of other energy sources in a highly complex market. For example, methane competes with propane (a byproduct of natural-gas processing), liquid petroleum as fuel oil, and with electricity for residential and industrial heating. Methane is an alternative fuel for gasoline and diesel fuel for some industrial equipment, and in some cases for transportation vehicles. Use of natural gas for generation of electricity has already had a major effect on increasing costs of methane (and fertilizer). Rising costs of natural gas likely will occur, then, not only through the direct effects of taxation on natural gas plants, but through the inflationary effect of rising energy costs in general in response to carbon limits.
The third major effect of carbon limits and taxes on CO2 emissions will be to increase the cost of transportation fuels which will be passed on to fertilizer. An example of plausible effects can be found in the response of domestic fertilizer prices to rising fuel costs in 2007. According to Huang, McBride and Vasavada of the USDA Economic Research Service (Amber Waves, Volume 7, Issue 1) in 2007 “58 million tons of fertilizers were shipped to U.S. agriculture producers by ocean freight, railroads, trucks, barges and pipelines” and “transportation accounted for about 22 percent of the cost of ammonia shipped from Trinidad and Tobago to the U.S. Golf Coast, and more than 50 percent of the cost of ammonia shipped from Russia to the U.S. Gulf Coast.” Concurrently, the cost of transporting fertilizers from the U.S. Gulf Coast to farmers throughout the midwest rose dramatically. Over the 3 years ending in January 2008, U.S. rail rates to transport ammonia increased 63%, and an additional 44-percent fuel surcharge was added to U.S. rail transport costs in July of 2008 because of high fuel costs. Rising transportation costs contributed to the the increased price of anhydrous ammonia from about $300 per ton to about $500 per ton – almost double! This is how the effects of carbon suppression on transportation fuel costs will be passed to nitrogen fertilizer and other farm inputs.
A joker in the deck, indirectly related to ammonia prices but with other synergistic effects on food costs, is the biofuels industry. Bioenergy (ethanol and biodiesel fuel) is produced from fermentation of plant carbohydrates, or use of plant-produced oils. It is supposedly carbon neutral, because CO2 released to the atmosphere through its combustion and use is originally drawn from the atmosphere. However, crops used for bioenergy do not escape the carbon-nitrogen fertilizer nexus discussed above for food production (see Part I). They are a part of the same nitrogen use pool. Therefore, increased demand for corn, sunflowers, or perhaps later, for cellulose-producing crops for energy production, requires a corresponding increase in nitrogen use, and a corresponding increase in CO2 from combustion of methane or coal feedstocks. Bioenergy will, therefore, function economically as a competitive use vs. food production within the cost structure of fertilizer, and will tend to move nitrogen fertilizer costs (and carbon emissions from fuels used to produce it) upward.
Indirect effects on food production through fertilizer costs, however, are only part of the biofuels picture. Their feedstocks share the same commodity market pool with food. Allen Baker and Steven Zanheiser of the U.S. Department of Agriculture (Amber Waves, April 2007) predicted that the ethanol industry share of U.S. domestic corn production would increase from 12 percent in 2004/2005 to as much as 23% by 2014/2015 at expected rates of increased ethanol production. They proposed that after an initial period of price buffering from stored grain the main supply would come from decreased exports, as countries least able to pay, or most able to expand corn production, would buy less corn at higher prices. Brittany Sauser in the MIT Technology Review (February 13, 2007) cited Purdue University agricultural economist Marshall Martin and David Victor, director of Stanford’s Program on Energy and Sustainable Development,” as attributing a 70 percent increase in corn prices in the fall of 2006 to demand from the ethanol market. She further cited Wally Tyner, professor of agricultural economics at Purdue University, as attributing a 15 percent increase in the domestic cost of pork, poultry and egg production to ethanol competition for feed grains.
Now biofuels have a legitimate place in the overall energy picture. But in a free market the effect of biofuels feedstock demand on food prices is self limiting, since high cost of feedstocks also affects the profitability of biofuel. However, as prices of other energy sources increase from suppression and taxation of fossil fuels, it can be expected that the profitability of biofuels will be sustainable at proportionately higher feed grain prices, holding food prices at higher levels, decreasing exports to poorer nations, and causing other nations that can expand grain production to do so. This, in turn will affect international demand for nitrogen fertilizer.
In fact, remembering that China is periodically dependent on corn imports for its pork production, the large increase in domestic anhydrous ammonia prices in 2008 may have been at least partially affected by a reduction in nitrogen fertilizer exported from China to the world market due to increased U.S. domestic biofuels demand for feed grain and resulting high corn export prices. China is the number one world supplier of urea, producing about 17 percent of the global export market. In 2008 China increased its export tax on urea from 35 percent to 135 percent to ensure that sufficient supplies of nitrogen remained in China to meet its own production needs. Thus, an effect of fossil fuel suppression would be increased fertilizer and other food production costs, increased feed-grain demand and prices through the biofuels market, and suppressed food exports through prohibitive pricing. Suppression of food exports causes increased foreign demand for fertilizer to compensate for lost food imports, and decreases foreign fertilizer exports, affecting fertilizer costs in other nations, and round and round we go. The examples given here have been drawn only from the effects of U.S. domestic energy policy. While U.S. policy has long arms, it is important to understand that, unless an absurd and lopsided treaty like Kyoto is implemented, the effects of worldwide suppression of fossil fuel will be global. All nations will have to abate emissions, and the effects of combined global suppression on the world economy and the world food supply will be much more drastic.
Bioenergy proponents would point out (with some justification) that direct effects of bioenergy production on global food shortages will be buffered by the potential deployment of unused land, such as conservation reserve (CRP) land, and ongoing research-based production gains. Additional productive land is limited, however, and loss of CRP will have other consequences which are beyond the scope of this essay. Moreover, both “buffers” require the invariant proportional increase in nitrogen fertilizer to affect their production gains, thereby fueling the “indirect” limitations imposed by increased fertilizer demand against a supply limited by carbon sanctions.
Why Isn’t a Food Crisis Happening?
The answer is it IS happening, and it has been happening in spurts for at least three decades. The world is constantly bumping against the boundary of the food supply for many of its people.
As early as the late 1970s the sudden near doubling of fuel costs started to cause rumbles beneath the foundations of the Green Revolution, deepening concern over the food supply for developing nations. Assessing the problem for the U.S. Atomic Energy Commission, the late eminent agronomist, Dr. R. A. Olson of the University of Nebraska, and his colleague, R.A. Halstead, stated the following: “ A world-wide fossil fuel crisis has surfaced in the past year by reason of shortage and high cost, which is felt throughout all segments of human society. Nor has the agricultural sector...escaped the energy crisis. Among the agricultural inputs, fertilizer nitrogen is one of major concern. The commodity is currently in extremely short supply, world prices having more than doubled in the past year alone. Serious as this situation is to agricultural production in the highly developed countries of the world, it is a real disaster to the production potential of the developing countries. The birth of the ‘Green Revolution’ in those countries in the last ten years came about from an amalgamation of higher yielding varieties, improved pest and disease control, better crop watering practices, and the introduction of fertilizer nitrogen. Shortcomings in any one of these requisites invalidates the entire hunger package.” Olson and Halstead went on to explain that the most fundamental roadblock to food production in the foreseeable future was the elevated cost of energy sources for fertilizer manufacturing and the concomitant elevated cost of fixed nitrogen products, “to the extent that many of the developing countries are being priced out of the market for meeting their growing needs. Whereas, for example, India had been using in the order of 10 percent of the foreign currency earned from its exports for oil imports, it would at present require around 80 percent of such foreign earning to meet these needs.”
The grain supply increased in the early 1980s, following the U.S. grain embargo against Russia, as many nations opened new land tracts for production, causing a temporary surplus of grains and overflowing bins in the U.S. Eventually domestic grain supplies stabilized as U.S. land went into conservation reserve. However, again in 2001-2002 U.S. domestic costs of nitrogen fertilizer began to move upward, again in response to energy costs. The stress on U.S domestic fertilizer supplies beginning in 2000 was strongly influenced by a domestic increase in natural gas use, mainly for electric power generation, and was not international in source or scope. In a 2003 “Report to the Ranking Democratic Member, Committee on Agriculture, Nutrition and Forestry, U.S. Senate,” the General Accounting Office reported that higher fertilizer prices (increasing from about $100 per ton and peaking as high as $350 per ton in late 2000) resulted from higher natural gas prices which led to a 25 percent reduction in the domestic production of nitrogen fertilizer. According to the report, high energy costs, accounting for up to 90% of the cost of ammonia production, were again, in 2003, “having a negative financial impact on the U.S. nitrogen fertilizer industry, threatening to irreversibly cripple it.”
Domestic fertilizer shortages were offset by producers through decreased consumption (from 12.3 million tons in 2000 to 11.5 million tons in 2001), and by a 43 percent increase in fertilizer imports. The correction in the U.S. market was enabled by the fact that the natural gas prices are uneven on the world market. For example, when the U.S. natural gas price was $5 per MMBTU, the price per MMBTU in the Middle East was 60 cents, in North Africa, 40 cents , in Russia 70 cents, and in Venezuela 50 cents. In this case, imports of foreign fertilizer compensated for a U.S. shortage caused by an elevated spot market for natural gas. However, it is important to understand that U.S. importation of fertilizer inversely impacts the price of fertilizer in the exporting nations, affecting their agriculture as well, as exemplified by China’s export tax. A world-wide suppression of fossil energy will be quite another matter, elevating fertilizer costs in virtually every spot market. International compensations for domestic shortages will be dampened, and upward forcing of fertilizer prices will be global, effecting everyone.
According to Huang and colleagues, nitrogen fertilizer prices have continued to trend upward, peaking in 2008. Higher prices were spurred by “rising populations, and strong global growth in average incomes, particularly in developing countries” which have led to “increased consumption of staple foods but also diversified diets to include more meats, dairy products and vegetable oils.” They further state that “At the same time, worldwide growth in biofuel production diversified the use options of grains, sugarcane, soybeans, and rapeseed and contributed to higher prices for biofuel feedstocks, particularly corn.” The May 2008 FAO “Food Outlook: Global Market Analysis” predicted that “Soaring prices and volatile conditions characterized world cereal markets for much of the 2007/08 season. Some relief may be in sight for the new season (2008/09) but given the seriousness of global supply and demand imbalances, cereal markets are unlikely to regain their stability any time soon.” The effect of the “soaring” food prices was to spur production in exporting nations. Good production in 2008, combined with the softening economy caused an increase in grain stores, contributing to lower prices. However, the December 2010 FAO Food Outlook predicted that “stocks held by major exporters may fall substantially in 2010,” and that “a period of volatile and even rising prices cannot be ruled out.”
The effects of high input costs on the Green Revolution are already evident in developing nations. Bourne cited debt from the high cost of fertilizer and pesticides as a cause for 1,400 cases of farmer suicide in 93 Punjabi villages between 1988 and 2006. “Some put the total for the state as high as 40,000 to 60,000 suicides over that period.” According to Bourne, “skyrocketing” food costs between 2005 and the summer of 2008 tripled the price of corn and increased the price of rice five-fold, “spurring food riots in nearly two dozen countries and pushing 75 million more people into poverty.” (The reader should note that this number is already within the range of Rozenweig’s predicted population at risk of hunger in 2060 due to climate change – without crop or economic adaptation - see Part I). Bourne added that “This time, the high prices were a symptom of a larger problem... simply put: For most of the past decade, the world has been consuming more food than it has been producing. After years of drawing down stockpiles, in 2007 the world saw global carryover stocks fall to 61 days of global consumption, the second lowest on record.”
With respect to the social impact of export prices, Sauser stated that, “ in Mexico, which gets much of its corn from the United States, the price of corn tortillas has doubled in the past year...setting off large protest marches in Mexico City.” The worldwide reaction to the 2005-2008 grain prices may serve as a hint of the social destabilization that may result as the suppression of the use of fossil fuels gains momentum, and food supplies become tighter. The 2005-2008 event was temporary, and controlled and limited by market factors. It was likely only a small glimpse of what will occur as full fledged global sanctions on carbon emissions gain effect.
The point of it all is this: The world food supply is tight and volatile. Increasing world population, combined with efforts to diversify the diets of people in developing nations (and their demands for life improvements) promise a higher future demand, not a surplus. The prospect of rising food costs precipitated by soaring production costs from taxes or limits on fossil fuels, or a shortage of nitrogen fertilizer or other vital agricultural inputs would place adequate food beyond the means of many in the poorest nations. One may, perhaps, view the response of many nations to high food prices in 2005-2008, and the agony of the Punjabi farmers as a hint of the social instability and personal tragedies that will result.
The next issue explores the dangers of a false definition of “sustainability,” and examines some of the plausible deleterious effects of global policies forcing CO2 suppression on human welfare and survival.